A Day With Poor Internals

We have not seen a day with poor internals like this in several weeks.

10-1 declining to advancing stocks and much more volume is going to stocks on the downside than on the upside.

The main question is, do we test the November lows on the major indices? We're still 700 points from the low on the Dow of 7449; so the Dow would have to drop another 10 percent to get there.

About half of the traders think that retest is likely.

What we know is that financials have led this leg of the decline, and that they are already at or near new lows. The Bank Index, a basket of large bank stocks, is poised to close below its November low, even if only a few of its components (M&T Bank , Fifth Third ) are actually at new lows.

Here's the problem: some of the big banks continue to have robust dividends. Citi , for example, has a dividend yield of 13 percent, Bank of America 12 percent. Street believes these kinds of dividend yields are unlikely to continue.

The fact that we have had JP Morgan and Citigroup move up their earnings reports, and Deutsche Bank pre-announced, is evidence that banks believe the longer they wait to get bad news out the more pressure will be on their stocks.

Who else is leading the charge down? Railroads: Burlington Northern , Norfolk Southern , and CSX are sitting at or near new lows as traders are anticipating freight and coal traffic will remain weak.

In addition, oil service stocks are under considerable pressure again.

They did not really participate in the modest rally we saw in the last month, and they are among the weakest sectors, for reasons that we already know: with demand weak, supply plentiful, major oil companies have already announced major capital expenditure cuts which directly affect oil service.